Some ideas on an alternative tax relief approach

There was little information within the Autumn Statement & lsquo;blue book’ as to how HMRC will respond to the recent consultation on reforming tax reliefs on travel and subsistence expenses or how PSCs are to be treated following rumours that PSC status will be removed after a short period on contract.

This means that employment intermediaries, umbrella companies and agencies supplying individuals who are currently benefitting will to have to wait until draft legislation is published on 9 December 2015 before it is clear what action, if any, can be taken and how any new regime would work.

Adrian Marlowe, chairman of ARC, said, “In our response to the original consultation in the summer we raised concerns that the withdrawal of these reliefs could have the potential to cause significant damage to the UK’s flexible work-force. Whilst we acknowledge that the Exchequer has to achieve savings, HM Treasury should also consider retaining measures that ensure agency work remains an attractive option to work seekers. Otherwise what may appear to be a short term fix to the emotive issue of tax avoidance in the sector, could turn out to be a long term disaster with HMRC recovering less than it does now whilst at the same time rendering the UK a less attractive workplace.”

“For example, agency workers are likely to avoid taking up jobs that involve any significant travel if the tax relief is no longer available unless their pay rate is increased, and hirers are unlikely to meet higher costs. This is particularly so in certain sectors, notably the health, education and construction sectors. Those workers could be forced into a lower income bracket, potentially becoming entitled to more tax credits and state benefits. As fewer workers become available, hirers, already stretched through the shortage of skilled workers, would be even harder pressed with a potential damaging effect on industry that could affect viability of projects and thus tax revenue.”

The ARC believes a balance is to be had and this may require an entirely different approach. For example, all agency workers could be entitled to some travel expenses, to encourage and support flexibility. At the same time, HMRC could let go some benefits such as tax free lunches when travelling – everyone eats lunch whether travelling or not, so why the tax relief? On this last subject, however, in response to a FOI request for a breakdown in reliefs given for travel as separate from subsistence, the ARC has been told that the Treasury does not retain that information. As Marlowe said, “Without this information how can the Treasury assess our idea, to scrap relief on lunch cost which perhaps could work as a simple viable half way measure and which would not upset flexibility one iota?”

Marlowe concluded, “The problem is that the Treasury is trying to work with an already broken system so far as HMRC is concerned. As with tax credits we urge the Treasury to do more work in this area before committing to a specific policy that comes with the risks we mention. This is not to support tax avoidance but rather to recognise it yet retain principles that have worked well for battleship UK for very many years.”